Economics seminar: The Freedom to Fail: Why Failing is Good
PhD Susanna Sällström Matthews, who was appointed lecturer at Cambridge University in 2000, presents a model of dynamic economic laws that maximise wealth by alternating between more freedom to fail and more control to protect from too much harm.
That freedom is an important determinant of economic growth is undisputed. However, the argument used is usually with reference to giving entrepreneurs the freedom to succeed by realising all profitable opportunities, and the paternalistic argument for limiting people's freedom is to protect them from failure.
Here I present a model of dynamic economic laws that maximise the rate att which we can go forwards and create more wealth from finite resources. This model explains why tools for wealth creation, i.e. social norms, technology and price are the opposite to dynamic laws and why they can be used both to enable and to hinder growth, and why we cannot tell them apart unless we understand dynamic economic laws.
It presents a geometric argument that explains psychological evidence why it is failing that makes us conscious of these dynamic laws that teaches us how to use tools in alignment with dynamic economic laws that maximise our rate of progress.
Policy wise it explains why the optimal degree of freedom should not be constant, but change. We need to alternate letting go of control to give people the freedom to fail, but we also need to seize control again to protect them from causing themselves and others too much harm in the process. And over time as our collective consciousness evolves we can increase the amount of freedom.
It explains why the recent experiment with economic liberalisation enabled a lot of good, precisely because of all the failures that have raised our collective consciousness about the nature of dynamic economic laws.
After a PhD from the Stockholm School of Economics on the dynamics of Price and quality, Susanna took up a post as Stanley Smith Research Fellow at the University of St Andrews in 1997 and was appointed University Lecturer at the University of Cambridge and made a Fellow of St John's College Cambridge, and Fellow of CEPR in 2000.
Susanna's main research interest is about improving our understanding of the interaction of several dynamic mechanisms at work in the economy that involve collective learning, wealth creation, and finite resources.